Half Yearly Report

RNS Number : 3385J
Miton UK MicroCap Trust plc
17 December 2015
 

MITON UK MICROCAP TRUST PLC
HALF-YEARLY REPORT FOR THE PERIOD TO 31 OCTOBER 2015

 

The Directors present the Half-Yearly Financial Report of the Company for the period to 31 October 2015.

 

Miton UK MicroCap Trust Plc is an investment trust quoted on the London Stock Exchange under the ticker code MINI, with total net assets of £58m as at 31 October 2015. It is referred to as the Company, the Trust or as MINI in the text of this Report. The Company has a Board that is independent of the Manager.

 

This Report covers the initial period of the Trust's life up to 31 October 2015, a period when mainstream markets were falling back- for example, the FTSE All-Share Index was down 7.3% in the half year. The net asset value ("NAV"), however, has risen by 7.0% since issue, in spite of bearing the costs of investing the new capital.

 

In response to investor demand the Trust issued an additional £5.4m of new equity in the period. Both the capital appreciation of the portfolio and the additional stock issuance has grown the scale of the Trust, with the benefit of spreading the fixed costs of the Trust over a larger capital base, as well as increasing the marketability of the Trust's shares.

 

RESULTS FOR THE HALF YEAR TO 31 OCTOBER 2015

 

 

Summary of Results

 

 

52.42p

Ordinary share price (mid)

56.00p

Premium to NAV

6.83%

Revenue return per ordinary share

0.11p

Ongoing charges

1.88%*

 

* Estimated as at 31 October 2015. Ongoing charges are the Company's annualised revenue and capitalised expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year.

 

CHAIRMAN'S STATEMENT

 

This is the first interim report of the Miton UK Microcap Trust plc and covers the period to 31 October 2015.

 

Half year returns

The initial capital was invested during a period when world economic growth was moderating with many mainstream equity indices suffering a setback. The FTSE All-Share Index fell 7.3% during the first half. In contrast the share prices of many of the smaller quoted companies have generally held up rather better. The FTSE SmallCap (excluding Investment Companies) Index actually rose 1.3% in the period whilst the FTSE AIM All-Share Index fell just 1.9%. In spite of incurring the transactional costs of investing the new capital, the Manager has added value in the initial period with the Net Asset Value of the Trust up 7.0% in the half year.

 

The dividend income accrued during the initial six month period was modest, and largely offset by the Trust's running costs, so no interim dividend has been declared. It is anticipated that the overall revenue surplus after costs for full year will also be modest.

 

The scale of the Trust

At launch on 30 April 2015, the Trust raised £50m of new capital at 50p a share.

Your Board take the view that, as a Trust such as this grows, there are advantages for shareholders as the fixed costs are spread over a larger capital base and, in addition, larger funds also tend to have greater liquidity in their shares. So, as the portfolio became substantially invested, the Board authorised the issue of an additional 9.99m shares at an average price of 53.5p towards the end of the period. Therefore at the end of October, the overall assets of the Trust had increased to £57.7m, including the market appreciation of the portfolio and the additional new capital raised during the half year.

 

Subsequent to the period end, the Board announced that it was actively considering an issue of additional equity by the Trust. The Board noted its intention that the proposed fundraising would take place in the first quarter of 2016, subject to prevailing market conditions and investor demand, and that it was considering whether the Trust's shareholders would be best served if the proposed fundraising took the form of an issue of C shares. An announcement giving further details would be made in due course.

 

Outlook

Smaller quoted companies tend to have greater vibrancy than their larger competitors. During the past decades of wide-ranging economic expansion, this factor has not been especially distinctive or relevant to most investors. But now that world growth expectations have moderated, there have been signs that institutional investors' willingness to invest in the smallest quoted stocks is increasing once again.

 

Naturally there will be both winners and losers, so the Trust's portfolio has been invested on a highly selective basis. The Trust's investment strategy favours stocks with real potential for productivity growth, along with risk moderated through preferring those with relatively strong balance sheets and good management. The Manager of the Trust has a good track record in selecting these companies, which often have a relatively low profile and may be neglected by the wider market, as there is often little available research on them. Superior productivity growth is anticipated to lead to better cashflow generation in time, and the longer-term expectation is that many of these kinds of companies will ultimately move towards paying good and growing dividends. Given that dividend growth in the mainstream stocks has been coming under pressure recently, this illustrates why the Board has confidence that our Trust remains well-placed to generate further future outperformance.

 

Andy Pomfret

Chairman

16 December 2015

 

MANAGER'S REPORT

 

Details of the Manager

The Company's Manager is Miton Trust Managers Limited, a wholly owned subsidiary of Miton Group plc ("Miton").

 

Miton is itself a smaller quoted company listed on the Alternative Investment Market in London. The business has a robust balance sheet and an extensive shareholder base of major institutions. Miton has sufficient scale to be well resourced, but being a smaller company also means it has greater flexibility than some larger competitors. An example of this agility is the fact that Miton has set up new funds ahead of others that are set to take advantage of the new investment trends.

 

Miton has a team of five fund managers researching UK quoted stocks. These include George Godber and Georgina Hamilton who principally seek stocks which are intrinsically cheap with regard to their tangible assets or where the scale of the underlying cashflow is underappreciated. Eric Moore principally concentrates on researching mid and larger companies, but also meets a number of smaller companies as this helps us keep up to date with the progress of different industries.

 

The day-to-day management of the Trust's portfolio is carried out by Gervais Williams and Martin Turner, who have a particular focus on researching many of the smaller quoted stocks.

 

Gervais Williams

Gervais joined Miton in March 2011 as Managing Director of the group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton Investor of the Year Award in 2009 and 2010, and was recently awarded Fund Manager of the Year 2014 by What Investment?

 

Martin Turner

Martin joined Miton in May 2011. Martin and Gervais have had a close working relationship since 2004, and their complementary expertise and skills led to a series of successful companies being backed. Martin qualified as a Chartered Accountant with Arthur Andersen, and also has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his role covered their research, sales and trading activities.

 

The overall objective of the Trust

During the credit boom most funds adopted mainstream indices as their benchmark of success. This risks introducing a mindset where the absolute share price risk of some of the largest index weightings can be perceived as less worrying, when compared to other stocks not included in the index. A very large number of equity funds therefore have sizeable holdings in a uniform group of the largest stocks.

 

Miton is distinctive in that many of our funds do not use traditional benchmarks. In particular, we advocate that market participants should be very attentive to the post credit boom trends, and we often propose investment strategies anticipating the forthcoming investment trends, rather than slavishly following the consensus. Overall we would like to manage this Trust so that it delivers a superior capital gain ahead of most other comparative funds. Although the dividend yield on the Trust will be modest initially, we also seek to invest the portfolio so that it also generates more dividend growth than most other comparable funds.

                                                                

Implementing the investment strategy

In general, we believe that companies with decent productivity improvements are likely to be amongst those that deliver attractive returns. The point is that productivity improvement typically generates a cash payback on the investment, and it is this growing cashflow that leads to these types of stocks outperforming. Businesses with decent cashflow can go on to fund yet more productivity improvements, as well as ultimately a stream of growing dividends that increases their market value over time.

We find the following five factors particularly helpful when selecting productive investments with attractive risk/reward ratios for the Trust.

 

Turnover growth - Although some companies can succeed in growing their profits without turnover growth, in general the greatest long term growth comes from those that expand their turnover. Companies investing in productivity improvement often are looking to widen their potential sales via an innovative new service, or through introducing a superior product. Even at times of economic stagnation, this type of improvement can sometimes generate decent turnover growth.

 

Sustained margins - A company that generates extra turnover growth may find it doesn't grow its cashflow much if its profit margins fall back. The best kinds of productivity improvement should reduce the cost of goods, although some may justify a better market price too. Ideally, we are looking for companies that have the potential to improve their profit margins, though in the current competitive environment it may be that even sustaining margins could be a good result.

 

Management of risk - All investment carries risks, but often those going for the fastest growth are obliged to take the greatest risks. In general we aim to moderate portfolio risk by investing in companies where the management team are happy to grow at a steady rate without taking sizeable risks. Such companies still carry plenty of potential to deliver an attractive return for their shareholders over time.

 

Better balance sheets

 

Low entry valuations

 

Progress over the period

 

Naturally, we have sought to be cautious when purchasing new holdings in the current environment. Generally, most of the portfolio has performed well, although there are a few stocks where share prices have fallen back subsequent to their purchase. Stanley Gibbons Group, which has the upside potential from its new online exchange for stamps and coins, suffered because integration issues impeded the profitability of some of its regular auctions. Aureus Mining, a gold miner just coming into production, reported that its new operations were running slightly behind schedule, which resulted in its share price falling back somewhat.

 

However, within the portfolio there were many more stocks that outperformed the wider market. Penna Consulting is the Trust's largest holding, and has continued to report strong growth in its personnel assessment, outplacement and recruitment operations, along with dividend growth.

 

Fulcrum Utility Services (featured on the front of the Interim Report) has also performed well, having grown its utilities installation operations over the last six months. International Greetings continued to generate excellent cashflow on its capex for productivity improvements over the last three years. This has driven additional sales at improving net margins.

 

Over the six month period the NAV of the Trust increased by 7.0%. This return is stated after all costs, including the costs of purchasing the holdings, and also administration charges such as the fund management fee.

 

The Trust's capital was not invested at the start of the period, dividends receipts were relatively modest and the revenue earnings per share small.

 

Current market trends and outlook

2015 has turned out to be a difficult year for dividend growth. Eight FTSE100 stocks have announced dividend cuts during the year, and there may be others yet to come. In addition, some other FTSE100 that paid premium dividend yields such as Amlin and Friends Life have also been acquired during the year, further diminishing the number of FTSE100 companies generating good and growing dividend income. In aggregate, the FTSE100 stocks generating dividend growth are now largely matched by those cutting their dividends. The net effect is that dividend growth across the mainstream market has generally stagnated.

 

Whilst we should in no way be complacent with regard to the prospects for dividend growth amongst smaller companies, many do appear to have better prospects. In part, this reflects the fact that smaller quoted companies, in general, have not been under pressure to pay such generous dividends in the past, so they often have better dividend cover. In addition, many smaller companies have less debt on their balance sheets, and so have less need of retaining their cashflow to repay debt. And, finally, many have greater vibrancy than larger companies, and therefore have scope to generate some growth in their operations even at times when the world economy is more constrained.

 

Although the dividend yield on the portfolio is still relatively modest, it is anticipated that many of the companies in the Trust will go on to generate decent growth in their cashflow over the coming three to five years, and, in part, this may come through in more sizeable dividend payments over time. In essence, we are upbeat about the prospects for the Trust on the basis that much of the portfolio comprises immature dividend income stocks.

 

Gervais Williams and Martin Turner

16 December 2015

 

PORTFOLIO INFORMATION

as at 31 October 2015

 

Rank

Company

Sector & main activity

Valuation

£'000

% of

net assets

Yield1

%

1

Penna Consulting

Industrials

1,912

3.3

2.4

2

Fulcrum Utility Services

Utilities

1,572

2.7

2.4

3

Cropper (James)

Basic Materials

1,301

2.3

1.4

4

WYG

Industrials

1,197

2.1

0.8

5

Kromek Group

Health Care

1,170

2.0

-

6

Cambria Automobiles

Consumer Services

1,157

2.0

1.0

7

Bilby

Industrials

1,110

1.9

2.2

8

STM Group

Financial Services

1,083

1.9

-

9

Safestay

Consumer Services

1,073

1.9

0.5

10

Publishing Technology

Technology

1,041

1.8

-

Top 10 Investments

12,616

21.9

 

11

IBEX Global Solutions

Industrials

1,030

1.8

7.0

12

Atlantis Resources

Oil & Gas

1,016

1.8

-

13

Zotefoams

Basic Materials

963

1.7

1.6

14

Cello Group

Consumer Services

958

1.7

3.2

15

K3 Business Technology Group

Technology

956

1.6

0.5

16

Creston                    

Consumer Services

955

1.6

2.8

17

Park Group

Financial Services

868

1.5

2.8

18

Utilitywise

Industrials

867

1.5

2.5

19

Charles Taylor

Industrials

816

1.4

3.9

20

NWF Group

Industrials

805

1.4

3.3

Top 20 Investments

21,850

37.9

 

21

BATM Advanced Communications

Technology

803

1.4

-

22

Norcros

Industrials

778

1.4

3.0

23

IQE

Technology

770

1.3

-

24

Walker Crips Group

Financial Services

735

1.3

4.0

25

Character Group

Consumer Goods

734

1.3

1.8

26

Fairpoint Group

Financial Services

732

1.3

3.6

27

CML Microsystems

Technology

714

1.2

2.0

28

32Red

Consumer Services

701

1.2

2.7

29

Amino Technologies

Technology

694

1.2

4.2

30

International Greetings

Consumer Goods

693

1.2

0.8

Top 30 Investments

29,204

50.7

 

31

Share plc

Financial Services

689

1.2

2.1

32

Stride Gaming

Consumer Services

689

1.2

-

33

Inland Homes

Financial Services

664

1.1

1.4

34

Gateley (Holdings)

Industrials

647

1.1

-

35

Churchill China

Consumer Goods

645

1.1

2.6

36

Pure Wafer

Technology

627

1.1

0.3

37

Finsbury Food Group

Consumer Goods

616

1.1

2.5

38

Proactis Holdings

Technology

614

1.1

1.0

39

1PM

Financial Services

600

1.0

0.5

40

Personal Group Holdings

Financial Services

581

1.0

4.0

Top 40 Investments

35,576

61.7

 

Balance held in 43 equity instruments

14,292

24.8

 

Total investment portfolio

49,868

86.5

 

Other net current assets

7,784

13.5

 

Net assets

57,652

100.0

 

 

1

 

Portfolio exposure by sector

Industrials

25.3%

Technology

17.0%

Consumer Services

16.4%

Financial Services

14.8%

Basic Materials

8.6%

Consumer Goods

6.9%

Health Care

5.9%

Utilities

3.1%

Oil & Gas

2.0%

 

Portfolio by asset allocation

AIM

82.7%

FTSE SmallCap Index

9.2%

FTSE Fledgling Index

6.7%

Other UK Equities

1.4%

 

Portfolio by spread of investment income to 31 October 2015

AIM

71.1%

FTSE SmallCap Index

15.5%

FTSE Fledgling Index

9.9%

Other UK Equities

3.5%

 

Estimated annual income by sector1

Industrials

35.7%

Consumer Services

20.0%

Financial Services

18.5%

Technology

9.2%

Basic Materials

6.1%

Consumer Goods

5.4%

Utilities

3.9%

Health Care

1.2%

 

1 Projected income based on portfolio as at 31 October 2015.

Source: Interactive Data.

 

INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT

 

Interim Management Report

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the remaining six months of the financial year are set out in the Chairman's Statement and the Manager's Report above.

 

The principal risks and uncertainties that could have a material impact on the Company's performance have not changed from those set out on pages 16 to 23 of the Prospectus dated 8 April 2015, available on the Company's website www.mitongroup.com/micro.

 

Listed below is a summary of the principal risks identified by the Board and actions taken to mitigate those risks.

 

Risk

Mitigation

 

Investment and strategy

There can be no guarantee that the investment objective of the Company will be achieved.

 

 

The Company is reliant on its Manager's investment process. The Board reviews and discusses the investment approach at each Board Meeting. The Manager has long experience managing portfolios of this nature and deploying an approach that is designed to maximise the chances of the investment objective being achieved over longer-term time horizons.

 

Smaller Companies

The Company will invest primarily in the smallest UK quoted or traded companies by market capitalisation. Smaller companies can be expected, in comparison to larger companies, to have less mature businesses, a more restricted depth of management and a higher risk profile.

 

 

The Board looks to mitigate this by ensuring the Company holds a well-diversified portfolio of company, both by number of companies and areas of operation. This is monitored at each Board meeting.

 

Reliance on third parties/Key person risk

The Company has no employees and is reliant on the performance of third party service providers. Failure by the Investment Manager or any other third party service provider to perform in accordance with the terms of its appointment could have a material detrimental impact on the operation of the Company.

 

The departure of some or all of the Investment Manager's investment professionals, in particular, Gervais Williams or Martin Turner, could prevent the Company from achieving its investment objective. The past performance of the Investment Manager's investment professionals cannot be relied upon as an indication of the future performance of the Company.

 

 

The Board monitors and receives reports, where

appropriate, on the performance of its key service providers.

 

The Trust may terminate the Management Agreement should both Gervais Williams and Martin Turner cease to be employees of the Manager, and if within three months of their departure a replacement or replacements are not found who Board considers to be of equal standing.

 

The Board may in any event terminate all key contracts on normal market terms.

 

Share price volatility and liquidity/marketability risk

The market price of the Ordinary Shares, like shares in all investment trusts, may fluctuate independently of their underlying Net Asset Value and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary Shares, market conditions and general investor sentiment. The Company becomes too small to be attractive to a wide audience and liquidity decreases and the discount widens.

 

 

 

The Company has in place an Annual redemption facility whereby shareholders can voluntarily tender their shares. The Board monitors the relationship between the share price and the NAV. The Company has powers to repurchase shares should there be an imbalance in the supply and demand leading to a discount. Since launch however the Company's shares have tended to trade at a premium to NAV.

 

Costs of operation

As stated the Company relies on external service providers. Many of these are paid on a basis where their fees are related to the size of the Company (an ad valorem basis). Others are for a fixed monetary amounts. Therefore if the Trust were to shrink, through redemptions, buybacks or asset performance, the cost per share of running the Trust may increase. This could make it harder to achieve the investment objective.

 

 

The Board monitors the costs of all service providers. The Board is also committed to the controlled growth of the Company which would spread the fixed costs over a larger asset base. In the event that the Trust were to decrease in size from its current level, the Board has capped the total costs at no more than 2 percent. of the aggregate market capitalisation.

 

Regulatory risk/change in tax status

The Company is subject to laws and regulations enacted by national and local governments. Any change in the law and regulation affecting the Company may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy.

 

 

The Board receives regular updates from its Secretary, industry representatives and its Manager on significant regulatory changes that may impact the Company. The Company's ability to determine the shape of regulatory or tax changes is limited and therefore the Board aims to ensure that it is well-informed and prepared to respond to changes as required.

 

 

 

Responsibility Statement

The Directors confirm that to the best of their knowledge:

 

·      the condensed set of financial statements has been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union; and gives a true and fair view of the assets, liabilities and financial position of the Company; and

·      this Half-Yearly Financial Report includes a fair review of the information required by:

a)     DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)     DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions that could do so.

 

This Half-Yearly Financial Report was approved by the Board of Directors on 16 December 2015 and the above responsibility statement was signed on its behalf by Andy Pomfret, Chairman.

 

CONDENSED INCOME STATEMENT

for the period to 31 October 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note

 

 

 

 

 

 

 

 

 

Gains on investments held at fair value through profit or loss

 

Income

 

 

 

 

Management fee

 

 

 

 

 

Other expenses

 

 

 

 

 

Return on ordinary activities before finance costs and taxation

 

Finance costs

 

 

 

 

 

Return on ordinary activities before taxation

 

 

Taxation

 

 

 

 

 

Return on ordinary activities after taxation

 

 

 

 

 

 

 

 

 

Basic and diluted return:

Per ordinary share

 

 

 

 

The Company does not have any income or expense that is not included in the 'return for the period'.

Accordingly, the 'return for the period' is also the Total Comprehensive Income for the period as defined in International Accounting Standard 1 (revised), and consequently no separate Statement of Comprehensive Income has been presented.

 

The total column of this statement is the Income Statement of the Company prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. The supplementary revenue return and capital return columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

 

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.

 

 

CONDENSED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Note

 

 

 

 

 

 

 

As at 29 April 2015

 

Total comprehensive income:

 

 

 

 

 

 

Net return for the period

 

 

 

 

 

 

 

 

Transactions with shareholders recorded directly to equity:

 

 

 

 

 

 

Issue of ordinary shares

Expenses of share issue

As at 31 October 2015

 

 

 

CONDENSED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note

Non-current assets:

 

 

 

 

 

Investments held at fair value through profit or loss

 

Current assets:

 

 

 

 

 

Trade and other receivables

 

 

 

 

Cash at bank and cash equivalents

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade and other payables

 

 

 

 

 

 

 

 

 

Net current assets/(liabilities)

 

 

 

Total net assets

 

 

 

 

Capital and reserves:

 

 

 

 

 

Share capital

 

 

 

Share premium account

 

 

 

 

Capital reserve

 

 

 

 

Revenue reserve

 

 

 

 

Shareholders' funds

 

 

 

 

 

 

 

 

 

Net asset value per ordinary share

 

 

             

 

 

CONDENSED STATEMENT OF CASHFLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

Net return before taxation

 

 

 

Increase in investments

 

 

 

Increase in trade and other receivables

 

Increase in trade and other payables

 

 

 

 

 

 

 

Withholding tax paid

 

 

 

Net cash outflows from operating activities

 

Financing:

 

 

 

 

 

Shares issued

 

 

 

 

Expenses of share issues

 

 

 

Net cash inflows from financing

 

 

Increase in cash and cash equivalents

 

 

Reconciliation of net cash flow movements in funds:

 

Cash and cash equivalents at the start of the period

Net cash inflow from cash and cash equivalents

 

Cash at the end of the period

 

 

 

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

 

1.       Significant Accounting policies

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The financial statements, which comprise the unaudited results of the Company for the period ended 31 October 2015, have been prepared in accordance with the accounting policies and methods set out in the Prospectus issued on 8 April 2015. Where presentational guidance set out on the Statement of Recommended Practice (the 'SORP') for investment trusts issued by the Association of Investment Companies in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with recommendations of the SORP.

 

The financial information contained in this report does not constitute full statutory accounts as defined in Section 434 of the Companies Act 2006. The financial statements for the period to 31 October 2015 have neither been audited nor reviewed by the Company's Auditors.

 

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met.

 

The Directors consider that it is appropriate to adopt the going concern basis. Cashflow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the dividend policy. On the basis of the review and as the majority of net assets are securities which are traded on recognised stock exchanges, after making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due.

 

The half year financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

 

These financial statements are presented in sterling as this is the currency of the economic environment in which the Company operates.

 

2.       Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from investments:

 

 

UK Dividends

 

 

Unfranked dividend income

 

Total income

 

 

 

3.       Return per Share

Returns per share are based on the weighted average number of shares in issue during the period. Normal and diluted return per share are the same as there are no dilutive elements on share capital.

 

Ordinary Shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue return

 

 

Capital return

 

 

Total return

 

 

Weighted average number of ordinary shares

 

 

 

 

4.       Called-up Share Capital

The Company was incorporated on 26 March 2015 with an issued share capital of £50,000 represented by 50,000 Management shares of £1.00 each.

 

On 30 April 2015, the Company issued 100 million Ordinary £0.001 shares at 50 pence per share in a placing, offer for subscription and intermediaries offer, raising £50 million before expenses.

 

In August 2015, the Company announced its intention to issue a maximum of 9.99 million Ordinary shares in the Company by way of tap issuance and block listing.

 

On 4 August 2015, the Company issued 8 million shares at a price of 53.6 pence per share, raising £4.288 million before expenses. On 10 August 2015, 503,687 shares were issued at a price of 53.7 pence per share, raising £0.271 million before expenses. On 19 August 2015, 250,000 shares were issued at a price of 54 pence per share, raising £0.135 million before expenses. On 20 August 2015, 350,000 shares were issued at a price of 54 pence, raising £0.189 million before expenses and on 2 September 2015 the remaining 886,313 shares were issued at a price of 52.8 pence per share, raising £0.468 million before expenses.

 

As at 31 October 2015 there were 109,990,000 Ordinary shares and 50,000 Management shares in issue.

 

5.       Net Asset Value per Ordinary Share

The NAV per ordinary share and the NAV attributable at the period end were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares:

 

 

 

 

 

 

Basic and diluted

 

 

 

 

 

NAV per ordinary share is based on net assets at the period end and 109,990,000 ordinary shares, being the number of ordinary shares in issue at the period end.

 

6.       Transaction Costs

During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

 

 

 

 

 

Costs on acquisitions

 

Costs on disposals

 

 

 

 

These transaction costs are dealing commissions paid to stockbrokers and stamp duty, a Government tax paid on transactions (which is zero when dealing on the AIM/ISDX exchanges). A breakdown of these costs is set out below:

 

 

Costs paid in dealing commissions

Costs of stamp duty

 

 

The average monthly net assets for the six months to 31 October 2015 was £54,073,000.

 

These costs do not include the costs of investing capital and the bid-offer spread on securities in the portfolio. Investments are valued at fair value which is bid value for listed securities. Certain holdings may have been acquired at a price higher than the bid price.

 

 

7.       Management Fee

The AIFM is entitled to receive from the Company or any member of its group in respect of its services provided under the Management Agreement, a management fee payable monthly in arrears calculated at the rate of 1% per annum of the Market Capitalisation as at the relevant calculation date.

 

In addition to the basic management fee, and for so long as a Redemption Pool is in existence, the AIFM is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month.

 

The AIFM has agreed that, for so long as it remains the Company's investment manager, it will rebate such part of any management fee payable to it so as to help the Company maintain an ongoing charges ratio of 2% or lower. In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income.

 

At 31 October 2015, an amount of £50,000 was outstanding and due to Miton Trust Managers Limited in respect of management fees.

 

8.       Fair Value Hierarchy

Financial assets of the Company are carried in the Balance Sheet at their fair value or approximation of fair value. The fair value is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements.

 

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

 

Level 1 - Valued using quoted prices, unadjusted in active markets for identical assets and liabilities.

Level 2 - Valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in level 1.

Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data or the asset or liability.

 

The table below sets out fair value measurement of financial assets in accordance with the fair value hierarchy into which the fair value measurement is categorised.

 

 

Financial assets at fair value through profit or

 

 

 

 

loss at 31 October 2015

 

 

 

 

 

Equity investments

 

 

 

 

 

 

               

 

At 31 October 2015, all the Company's financial assets at fair value through profit or loss are included in Level 1.

 

INVESTMENT OBJECTIVE AND POLICY

 

Investment Objective

The investment objective of the Company is to provide Shareholders with capital growth over the long term.

 

Investment Policy

The Company intends to invest primarily in the smallest companies, measured by their market capitalisation, quoted or traded on an exchange in the United Kingdom at the time of investment. It is likely that the majority of the MicroCap Companies held in the Company's portfolio will be quoted on AIM and will typically have a market capitalisation of less than £150 million at the time of investment. The Company may also invest in debt, warrants or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies.

 

The Company may utilise derivative instruments including index linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions.

 

If companies in the portfolio achieve organic growth or grow through corporate activity such as acquisitions, and consequently have a market capitalisation that would place them outside the investable universe, the Investment Manager will not be obliged to sell those holdings, but the proportion of the portfolio in such companies will be carefully monitored by the Investment Manager and the Board so that the overall investment policy to invest in the smallest quoted or traded companies is not materially altered.

 

The Company's portfolio is expected to be diversified by industry and market of activity. No single holding will represent more than 15 per cent. of Gross Assets at the time of investment and, when fully invested, the portfolio is expected to have over 120 holdings although there is no guarantee that will be the case and it may contain a lesser number of holdings at any time.

 

The Company will have the flexibility to invest up to 10 per cent. of its Gross Assets at the time of investment in unquoted or untraded companies, or in any one unquoted or untraded company.

 

The Company will invest no more than 10 per cent. of Gross Assets at the time of investment in other

investment funds.

 

Borrowing Policy

The Company may deploy borrowing to enhance long-term capital growth. Gearing will be deployed flexibly up to 15 per cent. of the Net Asset Value, at the time of borrowing. In the event this limit is breached as a result of market movements, and the Board considers that borrowing should be reduced, the Investment Manager shall be permitted to realise investments in an orderly manner so as not to prejudice Shareholders.

 

No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.

 

SHAREHOLDER INFORMATION

 

Capital Structure

The Company's share capital consists of Ordinary shares of £0.001 each with one vote per share and non-voting Management shares of £1 each. The Ordinary shares shall be redeemable in accordance with the Articles of Association of the Company. From time to time, the Company may issue C ordinary shares of £0.01 each ("C shares") with one vote per share.

 

As at 31 October 2015 and the date of this report, there are 109,990,000 ordinary shares in issue, none of which are held in treasury, and 50,000 management shares.

 

Redemption of Ordinary Shares

The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of ordinary shares on an annual basis. The first Redemption Point for the ordinary shares will be 29 April 2016. Redemption Request forms are available upon request from the Company's Registrar.

 

Shareholders submitting valid requests for the redemption of ordinary shares will have their shares redeemed at the Redemption Price. The Directors may elect, at their absolute discretion, to calculate the Redemption Price applying on any redemption point by reference to the Dealing Value per ordinary share or by reference to a separate Redemption Pool.

 

The Board may, at its absolute discretion, elect not to operate the annual redemption facility on any given Redemption Point, or to decline in whole or part any redemption request, although the Board does not generally expect to exercise this discretion, save in the interests of shareholders as a whole.

 

A redemption of ordinary shares may have both income tax and capital gains tax implications for individual shareholders.

 

Full details of the redemption facility are set out in the Company's prospectus dated 8 April 2015, or are available from the Secretary.

 

April 2016 Redemption Point

The following are the relevant dates for the April 2016 Redemption Point:

 

1 April 2016

Latest date for receipt of Redemption Requests for certificated shares

3.00 pm on 1 April 2016

Latest date for receipt of Redemption Requests and TTE instructions for uncertificated shares via CREST

5.00 pm on 29 April 2016

Redemption Point

By 16 May 2016

Company to notify Redemption Price and dispatch redemption monies

By 31 May 2016

Balance certificates to be sent to shareholders

 

Share Dealing

Shares can be traded through your usual stockbroker.

 

Share Prices

The Company's ordinary shares are listed on the LSE. The mid-market prices are quoted daily in the

Financial Times under 'Investment Companies'.

 

Share Register Enquiries

The register for the ordinary shares is maintained by Capita Asset Services. In the event of queries regarding your holding, please contact the Registrar on 0871 664 0300 (calls cost 12p per minute plus network charges) or email ssd@capitaregistrars.com.

 

Changes of name and/or address must be notified in writing to the Registrar: Capita Asset Services,

Shareholder Services Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.

 

Manager: Miton Trust Managers Limited

The Company's Manager is Miton Trust Managers Limited, a wholly-owned subsidiary of Miton Group plc. Miton Group is a leading multi-asset and equity fund management specialist listed on the AIM market for smaller and growing companies. The Manager has also been appointed as the Company's Alternative Investment Fund Manager under the AIFM Directive.

 

As at 31 August 2015, the Miton Group had £2.364 billion of assets under management.

 

Members of the fund management team invest in their own funds and are significant shareholders in the Miton Group.

 

Investor updates in the form of monthly factsheets are available from the Company's website, www.mitiongroup.com/micro.

 

DIRECTORS AND ADVISORS

 

Directors (all non-executive)

Andy Pomfret

Peter Dicks

Jan Etherden

Ashe Windham, CVO

 

Solicitor

Stephenson Harwood LLP

1 Finsbury Circus

London EC2M 7SH

Secretary and Registered Office

Capita Company Secretarial Services Limited

Beaufort House

51 New North Road

Exeter EX4 4EP

Telephone: 01392 477500

 

Depositary

BNY Mellon Trust & Depositary (UK) Limited

BNY Mellon Centre

160 Queen Victoria Street

London EC4V 4LA

Manager and Alternative Investment

Fund Manager

Miton Trust Managers Limited

Paternoster House

65 St Paul's Churchyard

London EC4M 8AB

 

Stockbroker

Peel Hunt LLP

Moor House

120 London Wall

London EC2Y 5ET

Company website

www.mitongroup.com/micro

 

 

Auditor

Ernst & Young LLP

1 More London Place

London SE1 2AF

Registrar and Transfer Office

Capita Asset Services

Shareholder Services Department

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

 

Telephone: 0871 664 0300

(calls will cost 12p per minute plus network charges)

 

Email: ssd@capitaregistrars.com

Website: www.capitaassetservices.com

 

 

 

 

An investment company as defined under Section 833 of the Companies Act 2006.

 

Registered in England No. 09511015.

 

A member of the Association of Investment Companies.

 

 

 

The Half-Yearly Financial Report will be posted to shareholders shortly. The Report will also be available for download from the following website: www.mitongroup.com/micro or on request from the Company Secretary.

 

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of this announcement.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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